Federal Reserve Holds Rates Steady and Sees Slightly Lower Risks

As expected, the Fed left its key policy rate unchanged today. This decision was widely anticipated, with all 95 forecasters in the Bloomberg consensus calling for a continued pause. As a result, the Fed has not adjusted its policy rate since the December 2024 meeting.

While the Fed remains committed to its current stance, the outlook could shift before year-end. Similar to the March projections, the median forecast points to a 50‑basis point reduction in the target range by the end of 2025, followed by further 25 basis point cuts in both 2026 and 2027.

The accompanying statement showed little change from the previous version, though the tone was slightly less concerned. In May, the Fed highlighted rising uncertainty and risks; now, it acknowledges a modest easing of those concerns—likely reflecting a de-escalation in trade tensions between the United States and China.

That said, risks remain elevated. In his press conference, Fed Chair Jerome Powell stated that “Changes to trade, immigration, fiscal and regulatory policies continue to evolve and their effects on the economy remain uncertain. […] increases in tariffs this year are likely to push up prices and weigh on economic activity”.

This reinforces the Fed’s wait-and-see approach. Powell added that “Today, the amount of the tariff effects—the size of the tariff effects, their duration and the time it will take—are all highly uncertain. So that is why we think the appropriate thing to do is to hold where we are as we learn more. And we think our policy stance is in a good place where we're well-positioned to react to incoming developments.”

In this context, the Fed is likely to hold rates steady again at its next meeting on July 30. However, upcoming economic data and greater clarity on the impact of trade, fiscal, and immigration policies on growth, employment, and inflation could open the door to rate cuts starting in September.